Dominion Diamond (TSE:DDC) (NYSE:DDC) released an updated mine plan for its 40-percent owned Diavik mine in the Northwest Territories last Friday, which met analysts' expectations.
The update included the A-21 pipe at Diavik, which has filled excess mill capacity at the mine, and is expected to improve margins and revive an otherwise declining production profile at the site.
"With A-21 filling excess mill capacity, Diavik's eight year mine life should remain robust with stable margins delivering consistent cash flow," said Dundee Capital Markets analyst Matthew O'Keefe in an analyst report released after market close on Friday.
Based on the updated tonnage, carat and cost estimates, Dundee adjusted its estimates, which continue to see A-21 "greatly maintaining margins over [Diavik's] eight year mine life."
Dominion Diamond also released Friday updated reserves to include A-21, which converted much of the previous measured and indicated resources to proven and probable reserves. Routine drilling increased reserve grades, Dundee said, while depletion decreased tonnage as expected. The mine's anticipated 8-year life was in line with Dundee's estimate.
The diamond miner released new cost estimates as well, with capex of C$392 million for the A-21 pipe meeting Dundee's estimate and the previous US$350 million guidance.
"Given that Diavik is largely a fixed cost operation, the operation benefits from the addition of A-21, which fills mill capacity and keeps cost per tonne metrics down," O'Keefe said.
Dundee also noted its outlook for diamond prices, saying that it believes lending tightening in the middle market will cause muted diamond price growth in the short term, though strong long-term supply/demand fundamentals will take diamond prices higher in the longer term.
Dominion Diamond, which plans on initiating a dividend after its year-end results are released in April, is also expected to release an updated resource estimate for its Ekati mine, which will include the impact of increased small stones, Dundee's O'Keefe said.
The brokerage, which also cited the ramp up of the high grade Misery pipe in 2016 as a positive upcoming catalyst, reiterated its buy rating on Dominion, and C$25.00 per share price target.
Shares fell 1.4 percent on Monday, to C$21.07 in Toronto, paring year-to-date gains to just over 1 percent. The stock has increased over 36 percent in the past 12 months.